Nows the time for a tax increase

The gross-receipts tax isnt so bad, even if the governor supports it

Untitled Document
The governor’s proposed gross-receipts tax
isn’t as gross as you think. Ohio, Texas, Washington, and other
states have each implemented a version of the tax successfully. In those
places it provides needed revenues fairly, with no signs of
businesses’ failing or fleeing, as the Illinois business lobby warns
will happen here. Unfortunately, Gov. Rod Blagojevich has so botched the
politics of his proposal that it stands little chance of getting a fair
hearing, much less passage. First, after his reelection campaign, in which he
said that he wouldn’t increase taxes, he laid no political groundwork
for his reversal. In Ohio and Texas the GRT came from blue-ribbon study
commissions; here it came out of the blue. Now his strident anti-business
populism only tends to confirm fears that Blagojevich is going to drive
away companies and jobs. The governor actually said, “This is going
to be Armageddon, and, as Teddy Roosevelt said, we are on the side of the
Lord.” Hey, Kingfish, this is Illinois. We like business here. At least the GRT proposal has finally shifted debate
from whether to have a tax increase to what type of tax increase Illinois
should pass. For years the state’s politicians, led by the governor,
have been in denial about the need for more revenue. Even during last
year’s election campaign the governor said that selling the lottery
would provide enough cash to meet the state’s obligations, and his
opponent was similarly disingenuous. It came as little surprise that the
governor changed his tune after the election, because politicians tend to
do that, though going from a pledge of no tax increase to proposing the
largest tax increase in the state’s history seemed radical. By now,
however, even the business community seems resigned to the fact that some
sort of tax increase is coming. Last month House Speaker Michael Madigan
made it sound inevitable: “Before we finish the budget in May or
June,” he said in Waukegan, “Illinois is going to need a tax
increase. You’ve heard it many, many times. We need more and better
education. That takes money.”A compromise is in order, and Madigan, who has so far
remained above the fray, seems the one most likely one to arrange it.
Illinois is sorely in need of new revenue for education and pensions, as
well as to fund the backlog of unpaid Medicaid bills. If there is money for
it, the governor’s health-care proposal is worthy of consideration,
too. A good compromise package would draw heavily upon Senate Bill 750,
which would increase personal and corporate income taxes, plus extend the
sales tax to cover services, while lowering property taxes. Some have
suggested including in the mix an “alternative minimum tax”
based on gross receipts, which could tap the state’s largest
companies that pay little or no corporate income taxes now. Though the GRT has been vilified to death for now,
the concept is worth consideration for the future. The idea of a business
tax that would take a little from everybody but not much from anybody has
appeal. A tax with a broad base and a low rate is better than one with a
narrow base and a high rate. The fact that it would reach many businesses
that aren’t paying the corporate income tax now has been cause for
much squawking, but it’s also part of the GRT’s beauty. Texas,
Ohio, and Kentucky turned to the GRT because too few businesses were paying
a major share of state taxes and others were getting a free ride. In
Illinois, the service sector of the economy is the fastest growing, but it
pays little in taxes compared with the goods-producing sector. Some form of
GRT would level the playing field. Some argue that the GRT is regressive,
taxing relatively small businesses and startups at the same rate as the
largest businesses. But it is not as regressive as the property tax, which
hits the smallest businesses the hardest, or the sales tax, which takes the
biggest bite from those with the lowest incomes. A GRT could mitigate the
need for sales- and property-tax increases. Another complaint is that GRT
has a “pyramiding” effect, that it would compound because it is
imposed on raw materials and the finished product, too. But if the rate is
kept low, even with some pyramiding the tax bite still won’t amount
to much.Illinois has always been a low-tax state, and now it
ranks near the bottom in state and local revenues per capita. The
Legislature needs to recognize that the bottom is not a good place for
either people or businesses. Business needs fair taxation, but it also
needs a state with good education, health care, transportation, and
environment — the things that increased tax revenues can buy. Now is
the time to get a deal done. Contact Fletcher Farrar at ffarrar@illinoistimes.com